Our Guiding Principles

Our methods are not quantitative or fashionable. We spend a lot of time examining issuers and assessing their creditworthiness. Our long collective experience in credit analysis contributes to our ability to avoid overpriced and risky issuers and identify securities that are undervalued given their credit risk and potential return. We tend to exploit illiquidity, buying when fear is prevalent and selling into enthusiasm. We do not avoid risk but rather we ensure that credit risk is priced appropriately and that our client portfolios are compensated for the risks they assume.

Our investment techniques focus on default risk and the cash flows that support investment value.

Our contrary nature is tempered by our risk management discipline. Many years of investing in distressed debt has given us a substantial insight into the value of issuers after default. We have incorporated this into our research and look at the loss potential of each issuer prior to investment. We call this our Maximum Loss Analysis and this is used as an input in determining the size of each position based on its potential impact on return. Demand and supply pressures often move the market prices of securities to valuation extremes. We believe that this creates opportunity for our disciplined and value oriented approach to investing. From the highest rated issuers to those near default, our valuation discipline creates substantial risk-adjusted returns. It is not easy to invest when markets are paralyzed by fear and the financial press is filled with crisis and gloom. We have found these excellent times to find bargains as those who overpaid for highly promoted and fashionable issues are often driven to sell at cheap prices. The purchase decision is key. It is easy to buy popular investment at a steep price or a poor investment cheaply. It is central to our philosophy to buy securities when they are out of favour and priced cheaply compared to their ongoing cash flows. We prefer to buy and hold our investment for long periods of time. This does not mean that we are captive to our holdings. Just as we buy things cheaply, we sell overvalued securities when market prices move well beyond our estimate of reasonable value.